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Since 2010, the Affordable Care Act's policy mandates and regulatory requirements have been the primary forces driving innovation and investment in healthcare technology. But as the political tides shift, and in light of last year's stops and starts on healthcare reform, many experts expect the private sector to pick up the mantle of progress.

That was a key takeaway from a panel moderated by Joshua Kaye, chair of DLA Piper's US Healthcare sector, in conjunction with the 2018 JP Morgan Healthcare Conference in San Francisco. The panel, "Healthcare M&A Exits, Who's Buying, What Are They Buying, and Why?" also discussed the slowing evolution toward value-based care, investment trends and a few of the developments that appear primed to advance the healthcare field.

Below are the highlights of the discussion, which featured:

Jason Lineen, Vice President, Strategy, AVIA

Lisa Suennen, Senior Managing Director, GE Ventures

Court R. Turner, Partner, Accelerator Life Science Partners

Joshua Kaye: Given what happened in 2017 at the federal level regarding healthcare reform, what should we expect going forward?

Jason Lineen: I've given up trying to predict where policy will go. If you're an executive leading a multibillion-dollar health system, the level of uncertainty has never been greater. Health systems are developing and executing "no regret" strategies that will position their organization for future success in either payment model (fee-for-service or some alternative payment model). Additionally, some leaders are beginning to question significant future investments in building out expensive population health infrastructures and/or launching provider-sponsored health plans. That said, I believe health systems will continue to make investments in these value-based care capabilities – but, they likely will be more measured in the near term.

Lisa Suennen: It's common for regulations to drive business in healthcare. All of the Affordable Care Act-related regulations, the Health Information Technology for Economic and Clinical Health Act and a lot that came before, drove innovation in digital health. Regulations are a double-edged sword when it comes to healthcare. We probably wouldn't have a lot of the businesses we have without them.

Joshua Kaye: We've heard a lot in recent years about value-based healthcare. What's the status of that evolution – particularly when it comes to things like apps that work in tandem with existing Electronic Medical Records (EMR) systems?

Jason Lineen: While it's been a long time coming, I'm encouraged by what I see as the major EMR vendors opening up their platforms to third-party apps. As these "EMR app stores" continue to mature and gain traction, a key barrier to innovation and digital solution adoption will be mitigated. Specifically, what used to be a six-month integration into a core EMR platform should in theory be reduced to a matter of weeks by leveraging APIs available via the app store.

Lisa Suennen: We look for solutions that solve really big problems – whether it's an app or something else is sort of incidental. One challenge is that the value-based initiatives that we've seen in the past several years have largely collapsed. The push for everything to be financially aligned that was the focus of the previous administration in Washington has been shut down to or slowed down to a large degree. It wasn't going that fast to begin with, but now it's not really moving at all – and we still live in a fee-for-service world. The other problem is the vast majority of these companies haven't produced evidence needed to justify the investment. They go in and claim to have solutions to problems, but they're expecting large healthcare systems to invest a lot of money without proof. The companies that are really thriving have produced enough evidence to warrant multimillion-dollar investments.

The triple aim of quality, efficiency and transparency is essential. If you're going to deliver equal or better quality at a higher cost, you're probably not going to sell your product. It's really tough to go in somewhere and talk about increasing their costs. The value-based world will eventually emerge. It's just not here today.

Jason Lineen: While the industry's transition from fee-for-volume to fee-for-value has moved slower than anticipated, I do think we'll get there eventually. Currently, I’m closely following private sector catalysts rewarding health systems for value (such as the Health Transformation Alliance). We'll see if the recent passage of the Tax Cuts and Job Act in December 2017 will provide tax relief for large corporations to not worry as much about their healthcare spend. But, the affordability crisis is real.

Joshua Kaye: In this environment, what's the best way to approach investors – and what's the best way to identify them?

Court Turner: The good part about being a firm like ours that's involved in early biotech is there is not an over-emphasis on sales solutions. When it comes to due diligence, I call everyone I know in big pharma and say I'm thinking about starting a company. And the person I'm talking to might not be there a few years from now – if I talk to four or five, maybe one will be there when we do the deal. The pitch is almost the same every time, and it comes down to when you can sell the asset. There are no slides about the financials – they focus on who is the scientific founder, what's the therapeutic opportunity and why is it better than the other solutions out there.

Joshua Kaye: What are some alternative funding methods, if traditional methods fall through?

Court Turner: One alternative – non-dilutive financing, or grants, is not where you want to live. There are some good stories where Small Business Innovation Research grants have gotten experiments to the point where they lead to institutional dollars. But if I can't get something funded, I move onto the next idea. One other option, crowdfunding, would be difficult for therapeutics. The amount of money you'd need and the number of shareholders involved, it probably wouldn't be worth it.

Joshua Kaye: How would you characterize the current role of insurers and physicians?

Lisa Suennen: Some physicians want solutions to make their lives easier but they don't want workflow disrupted. If you can bring them something that makes them do a better job, see more patients, add more revenue, improve their outcomes without blowing up their day-to-day practice, they like that.

Most physicians are now employed by health systems, somewhere around 60 percent. And many of the big transactions in healthcare last year were health insurers joining with health systems and focusing on the demand side. And when health insurers are purchasing digital health products, they're thinking about the impact on the cost of care, access and all the same things that health systems are looking for. A lot of the programs now serve both masters.

Joshua Kaye: We're in an era of artificial intelligence (AI), gene therapy and other innovations. What coming advancements have the most promise?

Court Turner: The innovations in gene therapy and immune oncology are pretty amazing. I've heard some interesting pitches where AI is doing things around microbiomes where a tremendous amount of information is available. The idea that the microbiome is the cause or savior of everything is an ongoing conversation these days. I can't figure out what part of the microbiome I should be focused on, but people are trying to apply AI for the information that's coming out. I've also heard interesting things about using AI for a combination of drugs that could lead to personalized health by way of machine learning.

I've always believed the body knows what it needs to do, it's just not always put in the right context. There are certain things that happen to the human body over time – especially as we get old, things don't work as well, and your immune system isn't as effective. Point being, there are a lot of answers out there. Some of the innovation now with immune oncology really is the story of the immune system. I'm convinced almost every new therapeutic is going to have an immune system story